It’s time for smart money to buy SembMarine: Deutsche Bank

It’s time for “smart” money to position in Sembcorp Marine after the more than 30 percent stock selloff, Deutsche Bank said.

The bank said in a note on Tuesday that the selloff was caused by fourth-quarter losses, which surprised consensus, although Deutsche Bank had forecast a loss. It also said the selloff was spurred on by expectations of potential losses over the next few quarters and inflated expectations that parent Sembcorp Industries’ strategic review of SembMarine would result in taking it private.

Deutsche Bank also pointed to Brent’s decline from US$70 a barrel after January and large short order late in February as driving the selloff.

But fundamentally, SembMarine’s balance sheet is the most “worry free” so far, Deutsche Bank said, noting the Sete Brazil termination could see potential provision writebacks and termination fees. Additionally, legacy jackup and semi-sub issues have been settled and property, plant and equipment is unlikely to impaired with increasing activity in Singapore and Brazil, the bank said.

Increasing new order wins ahead

While losses for the next few quarters are expected because new order wins were backloaded in 2017, increasing new order wins for 2018, 2019 and 2020 of S$2.8 billion, S$4.3 billion and S$4.6 billion would more than quadruple earnings from a low base, Deutsche Bank said.

It also said the stock appears undervalued at its current price-to-book of 1.6 times.

It recommended buying at current levels on multiple catalysts this year, including deleveraging from the sale of West Rigel and resolution of Sete Brazil orders, and as new order traction is expected to strengthen.